8.1 Introduction

The United States maintains the most far-reaching economic sanctions in the world.Footnote ¹ A recent review by the US Department of the Treasury noted that the number of sanctions designations by the Office of Foreign Assets Control has increased 933 per cent since 2000.Footnote ² Yet parties affected by economic sanctions have only recently begun to challenge these sanctions in US courts.

In discussing economic sanctions, it is common to distinguish between primary and secondary sanctions. Whereas primary sanctions limit economic relations between the sanctions’ target and the sanctioning state or its nationals, secondary sanctions limit economic relations between the sanctions’ target and third states or their nationals.Footnote ³ Secondary sanctions influence the behaviour of parties from third states by restricting their access to the markets of the sanctioning state or by imposing civil or criminal penalties.Footnote ⁴

Secondary sanctions denying access to US markets are nearly impossible to challenge successfully. From the perspective of US domestic law, access restrictions do not raise questions of extraterritoriality because they are implemented within the United States. From the perspective of customary international law, access restrictions are based on territoriality and nationality, which are recognized bases for jurisdiction to prescribe under international law.Footnote ⁵ More fundamentally, as Ruys and Ryngaert have noted, access restrictions ‘merely amount to the denial of privileges’, and ‘international law does not entitle foreign persons to financial, economic, or physical access’ to the United States.Footnote ⁶

Secondary sanctions that impose civil or criminal penalties on the nationals of third states are sometimes more legally questionable. Such sanctions may exceed US domestic law limits on extraterritoriality, may violate customary international law limits on jurisdiction to prescribe, or both. Yet third-state nationals have been, until recently, reluctant to challenge these secondary sanctions in US courts. In 2014, BNP Paribas, a French bank, chose to settle claims that it had violated US sanctions against Cuba, Iran, Myanmar, and Sudan by agreeing to pay a total of $8.9 billion to federal and state government agencies.Footnote ⁷ In 2018, Société Générale, another French bank, agreed to pay $1.3 billion to resolve claims involving US sanctions.Footnote ⁸ The reasons for these settlements appear to have less to do with the weakness of the legal arguments against civil and criminal penalties and more to do with the desire of large foreign banks to maintain access to US financial markets. In other words, the threat of access restrictions has caused foreign banks to acquiesce to other kinds of secondary sanctions.

However, US secondary sanctions have faced challenges for the first time in a series of prosecutions involving Turkiye Halk Bankasi, commonly known as Halkbank, a Turkish state-owned bank. Halkbank was allegedly involved in a multiyear scheme to evade US sanctions against Iran by using fraudulent transactions to make international payments for Iran through the US financial system.Footnote ⁹ The scheme involved top officials at Halkbank, including its general manager, deputy general manager, and the head of its Foreign Operations Department. It also involved a Turkish/Iranian businessman named Reza Zarrab, who was a major client of Halkbank.Footnote ¹⁰ In 2016, Zarrab was arrested in Florida on a trip to take his five-year-old daughter to Disney World. After failing to have the indictment dismissed,Footnote ¹¹ Zarrab pleaded guilty and agreed to testify against Halkbank’s deputy general manager, Mehmet Hakan Atilla, who was arrested in New York in 2017. Atilla was convicted in 2018 and sentenced to thirty-two months in prison.Footnote ¹² Halkbank was indicted in 2019.Footnote ¹³ Halkbank argued that, as a state-owned bank, it was immune from prosecution under the US Foreign Sovereign Immunities Act (FSIA).Footnote ¹⁴ The US Court of Appeals for the Second Circuit rejected that argument,Footnote ¹⁵ and the US Supreme Court confirmed that conclusion, holding that the FSIA does not apply to criminal proceedings and remanding the case to the Second Circuit to consider Halkbank’s claim of common law immunity.Footnote ¹⁶ If Halkbank’s common law immunity defence is ultimately rejected, then the case will presumably move to trial.

Zarrab, Atilla, and Halkbank each challenged the charges against them as impermissibly extraterritorial. In each case, the district court rejected those challenges in motions that required the defendants to carry a heavy burden to obtain dismissal.Footnote ¹⁷ Zarrab subsequently pleaded guilty, and Atilla did not raise the extraterritoriality questions on appeal.Footnote ¹⁸ If convicted at trial, Halkbank will have the chance to challenge the sanctions again on appeal. It may wish to do so because, as discussed in this chapter, there are significant problems with the district court’s extraterritoriality analysis.

This chapter evaluates the charges against Halkbank under both US domestic law and customary international law. After briefly reviewing the charges against Halkbank and the US district court’s analysis of the extraterritoriality questions, the chapter considers the application of the US presumption against extraterritoriality, concluding that all the charges except for the bank fraud charges survive this analysis. The conclusion with respect to customary international law, however, is quite different. Under customary international law, the United States lacks jurisdiction to prescribe when its only connection to the foreign defendant is the clearing of transactions through banks in the United States. Because the International Emergency Economic Powers Act (IEEPA) authorizes sanctions on financial transactions only when the person or property is subject to the jurisdiction of the United States, the sanctions regulations cannot lawfully be applied to Halkbank. The conclusion briefly notes some limitations on the chapter’s analysis.

8.2 The Charges

The central charge against each of the defendants has been conspiracy to violate IEEPA and more specifically the regime of sanctions against Iran. IEEPA gives the president authority to prohibit certain financial transactions.Footnote ¹⁹ The Iran sanctions regulations prohibit, inter alia, the exportation of services from the United States to Iran or to third countries with reason to know that the services will be reexported to Iran.Footnote ²⁰ US courts have held that executing money transfers from the United States constitutes the exportation of services under this provision.Footnote ²¹ The regulations further prohibit transactions that have the purpose of evading or avoiding the Iran sanctions, as well as conspiracies to violate the sanctions.Footnote ²² Violations are subject to civil and criminal penalties, including fines and imprisonment.Footnote ²³

Building upon this central charge have been other related charges. Each of the defendants was charged with conspiracy to defraud the United States in violation of 18 USC § 371.Footnote ²⁴ Section 371 ‘reaches “any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government”’.Footnote ²⁵ The indictments have alleged that the defendants obstructed the Department of the Treasury in its enforcement of economic sanctions and took steps to prevent it from discovering the illicit transactions.Footnote ²⁶

Each of the defendants was charged with bank fraud,Footnote ²⁷ conspiracy to commit bank fraud,Footnote ²⁸ or both. This fraud consisted of concealing from US banks the connection of the transferred funds with Iran, connections that made the transfers in violation of US sanctions.Footnote ²⁹ And each of the defendants was charged with money laundering,Footnote ³⁰ conspiracy to commit money laundering,Footnote ³¹ or both.Footnote ³² The relevant provision of the money laundering statute prohibits transferring funds from the United States ‘with the intent to promote the carrying on of specified unlawful activity’.Footnote ³³ The unlawful activity charged in the indictments has been the violation of US sanctions and the fraud on US banks of concealing those violations.Footnote ³⁴

8.3 The District Court’s Extraterritoriality Analysis

The district court’s extraterritoriality analysis in its most recent decisions has been cursory at best. In rejecting Halkbank’s extraterritoriality argument, the court treated all the charges together:

The court’s analysis in Atilla was similar.Footnote ³⁶ Both analyses are woefully lacking. The US Supreme Court has made clear that courts must determine the geographic scope of each statutory provision separately.Footnote ³⁷ And courts must use the ‘two-step framework’ that the Supreme Court has articulated rather than relying on general statements about a domestic nexus.Footnote ³⁸

The district court provided a somewhat more detailed analysis of extraterritoriality in Zarrab.Footnote ³⁹ With respect to the geographic scope of US sanctions, the court relied on United States v. Vilar, in which the Second Circuit held statutes prohibiting crimes against the US government may be applied extraterritorially even without clear evidence of congressional intent.Footnote ⁴⁰ The court also pointed to the language of IEEPA, which refers specifically to threats from ‘outside the United States’ and to ‘property in which any foreign country or a national thereof has any interest’.Footnote ⁴¹ With respect to the Section 371 charge of fraud against the United States, the court relied on criminal and civil cases holding that the movement of funds through the United States established a sufficient nexus.Footnote ⁴² The court did not analyse the geographic scopes of the bank fraud and money laundering statutes. Nor did it consider whether the extraterritorial application of any of the statutes and regulations would violate customary international law, a question of particular relevance to the geographic scope of the sanctions regulations promulgated under IEEPA. The remainder of this chapter provides the extraterritoriality analysis that the district court should have performed.

8.4 The US Presumption against Extraterritoriality

The presumption against extraterritoriality is a canon of statutory interpretation, and it is the principal tool that US courts use to determine the geographic scope of federal statutes and regulations.Footnote ⁴³ The presumption applies to criminal as well as civil statutes.Footnote ⁴⁴ The Supreme Court has adopted a two-step framework for applying the presumption.Footnote ⁴⁵ At the first step, a court looks for a clear indication of a statute’s geographic scope.Footnote ⁴⁶ If it finds a clear indication, the court applies the statute as Congress has indicated.Footnote ⁴⁷ If there is no clear indication of geographic scope, then at the second step, the court determines the focus of the statute.Footnote ⁴⁸ If the conduct relevant to the focus occurred in the United States, then applying the statute is considered domestic and is permitted.Footnote ⁴⁹ If the conduct relevant to the focus occurred abroad, then applying the statute is considered extraterritorial and is not permitted.Footnote ⁵⁰ The Supreme Court has recently noted that, at step two, there must be conduct in the United States regardless of the statute’s focus.Footnote ⁵¹

As noted, courts must perform this analysis separately for each statutory provision.Footnote ⁵² Even within the same statute, different provisions may have different indications of geographic scope and different focuses. In RJR Nabisco, for example, the Supreme Court found a clear indication in the structure of the federal racketeering statute (the Racketeer Influenced and Corrupt Organizations Act (RICO)) that RICO’s criminal provisions apply extraterritorially to the same extent as RICO’s predicate offences.Footnote ⁵³ But the Court found no clear indication of geographic scope with respect to RICO’s private right of action and held that the focus of this provision was on injury to business or property in the United States.Footnote ⁵⁴

How does the presumption against extraterritoriality apply to the statutes that Halkbank is charged with violating? Specifically, how does it apply to IEEPA and the sanctions regulations promulgated under it, Section 371, the bank fraud statute (and its conspiracy provision), and the money laundering statute (and its conspiracy provision)?

With respect to IEEPA, at step one of the analysis, one finds a clear indication in the text of the statute itself that Congress intended to give the president authority to impose sanctions extraterritorially. IEEPA expressly grants the president authority ‘to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat’.Footnote ⁵⁵ The authority granted specifically permits the president to regulate ‘transactions in foreign exchange’, transfers and payments through banking institutions ‘to the extent that such transfers or payments involve any interest of any foreign country or a national thereof’, and ‘the importing or exporting of currency or securities’.Footnote ⁵⁶ These are clear indications that IEEPA applies extraterritorially.

Pursuant to several executive orders, the Department of the Treasury issued regulations that prohibit the exportation of services from the United States, and their re-exportation, to Iran regardless of whether the exporter or re-exporter is a US person.Footnote ⁵⁷ Importantly, these regulations apply to what are commonly called ‘U-turn transactions’ between non-US banks that begin and end outside the United States but are cleared through correspondent banks in the United States.Footnote ⁵⁸ The regulations also prohibit transactions that have the purpose to evade or avoid US sanctions and conspiracies to violate US sanctions.Footnote ⁵⁹ As a general matter, US courts defer to reasonable interpretations of statutes by agencies that have been delegated the authority to administer them.Footnote ⁶⁰ This deference applies to agency interpretations of geographic scope.Footnote ⁶¹ It seems clear, therefore, that the US presumption against extraterritoriality does not bar the application of IEEPA and the Iran sanctions to Halkbank even if it acted entirely outside the United States so long as it engaged in the re-exportation of banking services from the United States to Iran, transactions to evade US sanctions on Iran, or a conspiracy to evade US sanctions. However, this conclusion is subject to one important qualification. As discussed later, if applying these regulations to Halkbank would violate customary international law, there is a serious question whether the president may act without more explicit authorization from Congress.Footnote ⁶²

Section 371, prohibiting conspiracies to defraud the United States, does not have any clear indication of geographic scope in its text.Footnote ⁶³ But because Section 371 protects the government from conspiracies to obstruct its lawful functions, a court could view the structure of the provision as indicating that it should have the same scope as the laws being obstructed, in this case sanctions laws. This is what the Supreme Court did at step one of the analysis in RJR Nabisco, finding that RICO’s criminal provisions apply extraterritorially to the same extent as the underlying predicate offences.Footnote ⁶⁴ Such an interpretation would also be consistent with US courts’ approach to the geographic scope of conspiracy statutes, which are generally read to be coterminous with the underlying criminal offences.Footnote ⁶⁵

Alternatively, Section 371 might fall within the category of non-geographic provisions recognized by the US Supreme Court in United States v. Bowman.Footnote ⁶⁶ The question in Bowman was whether a statute prohibiting false claims against the US government applied to claims made on the high seas and in other countries.Footnote ⁶⁷ The Court held that the presumption against extraterritoriality ‘should not be applied to criminal statutes which are, as a class, not logically dependent on their locality for the government’s jurisdiction, but are enacted because of the right of the government to defend itself against obstruction, or fraud wherever perpetrated’.Footnote ⁶⁸ That would seem to describe Section 371 well.

Finally, the Section 371 charges against Atilla and Halkbank were based partly on meetings that Atilla had with Treasury Department officials in Washington, DC.Footnote ⁶⁹ It does not appear that the Section 371 charges against Zarrab rested on any conduct in the United States, but that should not matter. Because Section 371 is based on the government’s right to defend itself against fraud, or because Section 371’s structure indicates that it should be given the same geographic scope as the sanctions the defendants were trying to obstruct, or both, the presumption against extraterritoriality does not require dismissal of these charges.

Halkbank was also charged with money laundering, specifically with transferring funds from the United States ‘with the intent to promote the carrying on of specified unlawful activity’,Footnote ⁷⁰ the violation of US sanctions. Unlike Section 371, Section 1956 expressly addresses its geographic scope, providing that ‘the district courts shall have jurisdiction over any foreign person, including any financial institution authorized under the laws of a foreign country’, if (among other things) ‘the foreign person commits an offense under subsection (a) involving a financial transaction that occurs in whole or in part in the United States’.Footnote ⁷¹ Halkbank’s dollar transactions that were cleared in the United States would seem to fall squarely within the geographic scope of the money laundering statute.

The same is not true, however, with respect to the bank fraud statute. The Second Circuit applied the Supreme Court’s two-step framework for the presumption against extraterritoriality to the bank fraud statute in Bascuñán v. Elsaca,Footnote ⁷² a case decided after the district court rejected the extraterritoriality arguments in Zarrab and Atilla but before its decision in Halkbank. At step one, the court of appeals found no clear indication that the bank fraud statute was intended to apply extraterritorially.Footnote ⁷³ At step two, the court held that the focus of the bank fraud statute was the scheme to defraud,Footnote ⁷⁴ and it found conduct in the United States relevant to the scheme in the defendant’s own use of US mails and wires to order the transfer of funds from US bank accounts.Footnote ⁷⁵ In the cases involving Halkbank, by contrast, the scheme to conceal Iran’s connections to the funds being transferred occurred outside the United States. Although Atilla met with Treasury officials in Washington, DC, there do not seem to have been similar meetings in the United States with US banks or any other US conduct relevant to the bank fraud scheme. It therefore seems questionable that Zarrab, Atilla, and Halkbank were properly charged with bank fraud.

Finally, there are the charges of conspiracy to commit money laundering and bank fraud. As noted earlier, conspiracy statutes generally have the same geographic scope as the underlying criminal offences.Footnote ⁷⁶ Indeed, the Second Circuit has held that ‘the presumption against extraterritoriality bars the government from using the conspiracy and complicity statutes to charge [a defendant] with any offense that is not punishable under the [statute] itself because of the statute’s territorial limitations’.Footnote ⁷⁷ This means that Halkbank may properly be charged with conspiracy to commit money laundering because its conduct places it within the scope of the money laundering statute. But it may not properly be changed with conspiracy to commit bank fraud because its conduct does not place it within the scope of the bank fraud statute.

In sum, most of the charges against Halkbank would survive a proper application of the presumption against extraterritoriality. IEEPA was intended to confer authority to regulate extraterritorially, and US courts should defer to the Treasury Department’s interpretation of Iran sanctions’ geographic scope. The Section 371 charge alleges that Halkbank conspired to obstruct the Treasury Department’s enforcement of the sanctions and should be given the same geographic scope. The money laundering statute contains a clear indication of its geographic scope that seems to encompass Halkbank’s conduct. But the bank fraud charge, and the related conspiracy charge, should not survive because the bank fraud statute contains no clear indication of its geographic scope and Halkbank does not appear to have engaged in any conduct in the United States relevant to the focus of the statute.

8.5 Customary International Law

It remains to be considered whether any or all of the charges violate customary international law, specifically the customary international limitations on jurisdiction to prescribe. In most cases, customary international law does not impose hard limits on the extraterritorial application of US law because, as discussed later, it is well established within the US legal system that Congress has the authority to violate international law. But in this case the central charge rests on administrative regulations, the Iran sanctions. The statutory authority for those sanctions found in IEEPA allows the president to regulate financial transactions, but only transactions ‘by any person, or with respect to any property, subject to the jurisdiction of the United States’ (emphasis added).Footnote ⁷⁸ Under the interpretive rule that federal statutes must be read not to violate international law if fairly possible,Footnote ⁷⁹ the reference to ‘jurisdiction of the United States’ should be read not to authorize the adoption of regulations that would violate customary international law limits on jurisdiction to prescribe. In addition, it is doubtful that the president has the constitutional authority to violate customary international law in the absence of express congressional authorization, authorization that IEEPA does not provide.

The question under customary international law is whether the United States has jurisdiction to prescribe rules to govern the conduct of foreign parties outside the United States.Footnote ⁸⁰ Customary international law permits exercises of prescriptive jurisdiction when there is a ‘genuine connection’ between the subject of the regulation and the regulating state.Footnote ⁸¹ There are six traditional bases for jurisdiction to prescribe: territory, effects, active personality, passive personality, the protective principle, and universal jurisdiction.Footnote ⁸² The key question is whether any of these bases would allow the United States to prohibit foreign parties from engaging in transactions outside the United States when the only US connection is the clearing of the transaction through correspondent banks in the United States – what Emmenegger and Döbeli have called ‘correspondent account jurisdiction’.Footnote ⁸³

It seems clear that neither territorial jurisdiction nor active personality (nationality) jurisdiction apply.Footnote ⁸⁴ Halkbank and its co-conspirators are not US nationals, and their conduct arranging the transactions prohibited by US sanctions occurred outside the United States.Footnote ⁸⁵ The most intuitively plausible basis for prescriptive jurisdiction is effects jurisdiction – that by arranging transactions in dollars outside the United States, Halkbank and the other defendants caused the clearing of those transactions in the United States. The problem with this argument is that to establish a genuine connection under customary international law, the effects must be substantial.Footnote ⁸⁶ It is difficult to see how merely clearing a transaction between foreign nationals that begins and ends outside the United States rises to the level of a substantial effect.Footnote ⁸⁷ The clearing does ‘not disrupt the U.S. payment system or make it less reliable or more expensive for its users’.Footnote ⁸⁸ The clearing does make US sanctions less effective outside the United States, but that is not a domestic effect.Footnote ⁸⁹

Passive personality jurisdiction, which allows a state ‘to prescribe law with respect to certain conduct outside its territory that harms its nationals’,Footnote ⁹⁰ fares no better. Although this principle is widely accepted with respect to terrorist offences and attacks on government officials, it is not clear whether the principle applies more broadly.Footnote ⁹¹ More fundamentally, the only ‘harm’ suffered by US nationals from the clearing of transactions in the United States is the harm that US correspondent banks would suffer from violating US sanctions. Using passive personality jurisdiction in these circumstances results in a kind of ‘bootstrapping’, in which a state’s regulation of its own nationals lays the foundation for regulating foreign nationals. This is very different from the circumstances in which passive personality jurisdiction has been recognized previously.

Nor do the remaining bases of prescriptive jurisdiction justify the application of US sanctions in these circumstances. The protective principle allows a state ‘to prescribe law with respect to certain conduct outside its territory by persons not its nationals that is directed against the security of the state or against a limited class of other fundamental state interests’.Footnote ⁹² It has traditionally been limited to offences such as espionage, terrorism, and counterfeiting.Footnote ⁹³ Although Iran’s nuclear programme and support for terrorism may well constitute threats to the national security of the United States, the same can hardly be said about clearing transactions that have no connection to terrorism or to Iran’s nuclear programme.Footnote ⁹⁴ Universal jurisdiction allows a state ‘to prescribe law with respect to certain offenses of universal concern, such as genocide, crimes against humanity, war crimes, certain acts of terrorism, piracy, the slave trade, and torture, even if no specific connection exists between the state and the persons or conduct being regulated’.Footnote ⁹⁵ But there is no plausible argument that clearing transactions in violation of US sanctions is an offence of universal concern.

In sum, when a transaction involves foreign parties and foreign conduct and the only US connection is the clearing of the transaction through correspondent banks in the United States, the ‘genuine connection’ that customary international law requires for jurisdiction to prescribe is lacking. The next question is what effect this conclusion has on the validity of the relevant sanctions as a matter of US domestic law.

If Congress had enacted the sanctions itself, the answer would be clear. As a matter of US domestic law, it is well established that Congress has the authority to adopt legislation that violates international law.Footnote ⁹⁶ But IEEPA does not clearly indicate a congressional intent to violate international law. To the contrary, Congress limited the president’s authority to regulate financial transactions to transactions ‘by any person, or with respect to any property, subject to the jurisdiction of the United States’.Footnote ⁹⁷ It is not certain that Congress was referring specifically to jurisdiction under international law. But it is a well-established rule of statutory interpretation that, ‘[w]here fairly possible, a United States statute is to be construed so as not to conflict with international law’.Footnote ⁹⁸ It is certainly possible to read this provision as granting only authority to regulate financial transactions that that permissible under customary international law. Thus, even without the express reference to ‘jurisdiction of the United States’, IEEPA must read not to authorize the adoption of regulations that violate customary international law limits on jurisdiction to prescribe.Footnote ⁹⁹

It is also doubtful that the president has constitutional authority to adopt regulations that violate international law without express congressional authorization to do so.Footnote ¹⁰⁰ The US Constitution requires the president to ‘take Care that the Laws be faithfully executed’.Footnote ¹⁰¹ As an early exchange between Alexander Hamilton and James Madison shows, the original understanding was that this constitutional obligation extended to the law of nations.Footnote ¹⁰² An early Supreme Court decision involving the seizure of enemy property during the War of 1812 also leaves no doubt that the president could not violate international law without congressional authorization. Writing for the majority, Chief Justice Marshall took the position that an act of Congress was required even to exercise the United States’ rights under the laws of war.Footnote ¹⁰³ In dissent, Justice Story reasoned that Congress’s declaration of war had authorized the president to seize enemy property but noted that he had no authority to violate international law: ‘He cannot lawfully transcend the rules of warfare established among civilized nations.’Footnote ¹⁰⁴

The strongest authority on the other side is a line of dictum from The Paquete Habana stating that US courts must resort to the customs and usages of civilized nations ‘where there is no treaty and no controlling executive or legislative act or judicial decision’.Footnote ¹⁰⁵ But the Supreme Court’s reference here to a ‘controlling executive … act’ was to an act interpreting international law, not to an act violating it. The Court also made this statement in a case where the president had committed the United States to act in pursuance of international law rather than in violation of it,Footnote ¹⁰⁶ and the Court went on to hold the United States liable for damages for violating customary international law.Footnote ¹⁰⁷ Although the Supreme Court has never squarely addressed the question, the weight of the evidence suggests that the president cannot violate customary international law without congressional authorization.

If, as this chapter has suggested, the United States lacks jurisdiction to prescribe under customary international law with respect to Halkbank’s banking activities outside the United States, one must conclude that the central charge of violating IEEPA and the Iran sanctions is invalid. IEEPA did not authorize the president to adopt regulations that violate international law, and the president lacks the constitutional authority to do this without congressional authorization. If this central charge is invalid, then the Section 371 and money laundering charges are invalid as well. The indictment charges Halkbank with conspiring to violate Section 371 by obstructing the lawful functions of the Treasury Department in its enforcement of economic sanctions.Footnote ¹⁰⁸ But if the sanctions are not valid, there can be no conspiracy to obstruct the Treasury Department’s lawful functions. The indictment charges Halkbank with money laundering as well because it transferred funds to carry on an unlawful activity.Footnote ¹⁰⁹ But if the sanctions are not valid, the activity being carried out was not unlawful.

The bank fraud charges stand on a different footing. Halkbank is charged with concealing the connection of the transferred funds with Iran from its US correspondent banks.Footnote ¹¹⁰ US sanctions clearly do apply to US correspondent banks, and concealing information from those banks could well amount to bank fraud. But as we have already seen, the bank fraud charges are invalid for a different reason – because Halkbank engaged in no conduct in the United States in connection with its scheme to defraud the banks.Footnote ¹¹¹

8.6 Conclusion

The conclusion that all the charges against Halkbank are invalid because they violate domestic and international law limits on extraterritoriality may strike the reader as surprising. It may, therefore, be worth noting some limits of the foregoing analysis. First, the analysis applies primarily to situations of ‘correspondent account jurisdiction’,Footnote ¹¹² where the only connection to the United States is the clearing of otherwise unrelated transactions by non-US persons through US correspondent banks. US sanctions are consistent with customary international law to the extent that they regulate conduct by US persons, conduct that occurs in the United States, or conduct that has substantial effects in the United States. ‘Correspondent account jurisdiction’ is unlawful only because it lacks the genuine connection with the regulating state that customary international law requires.

Second, the analysis applies only because the sanctions that violate international law have been adopted by regulation rather than by statute. IEEPA does not authorize the president to adopt regulations that violate international law, and the president lacks the constitutional authority to violate customary international law by himself. But Congress may certainly enact sanctions that violate customary international law or may expressly authorize the president to do so.

Third, the presumption against extraterritoriality does not prevent the application of US sanctions and other supporting statutes to conduct and persons outside the United States. For some statutes, like IEEPA and money laundering statutes, this is because the statutes themselves contain clear indications of their geographic scopes. For other statutes, like Section 371, it is because the statute takes its geographic scope from another statute that applies extraterritorially. There are statutes, like the bank fraud statute, that have been held to be more geographically limited and to require conduct in the United States. But many US statutes, including sanctions statutes, are not so limited.

This chapter has tried to address the extraterritorial application of US sanctions in the particular context of the charges against Halkbank. The questions of domestic and international law raised by this case are complex. They deserve more thoughtful treatment than what US courts have given them so far.